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TABLE OF CONTENTS CHAPTER I GENERAL PROVISIONS CHAPTER II BUSINESS COMBINATIONS UNDER COMMON CONTROL CHAPTER III BUSINESS COMBINATIONS NOT UNDER COMMON CONTROL CHAPTER IV DISCLOSURE CHAPTER I GENERAL PROVISIONS Article 1. For the purpose of regulating the recognition and measurement of business combinations, and disclosure of relevant information, these Standards are formulated in accordance with the Accounting Standards for Enterprises-Basic Standards. Article 2. The term "business combination" refers to a transaction or event bringing together 2 or more separate enterprises into one reporting entity. Business combinations are classified into the business combinations under common control and the business combinations not under common control. Article 3. The combinations regarding business operations shall be governed by these Standards. Article 4. These Standards do not apply to the following business combinations: (1) Any business combination in which 2 or more enterprises form a joint venture; (2) Any business combination in which 2 or more separate enterprises are brought together into a reporting entity merely by contract other than ownership shares. CHAPTER II BUSINESS COMBINATIONS UNDER COMMON CONTROL Article 5. A business combination under common control is a business combination in which all of the combining enterprises are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory. In a business combination under common control, the party which obtains control of other combining enterprise(s) on the combination date is the merging party, the other combining enterprise(s) is (are) the merged party. The "combination date" refers to the date on which the merging party actually obtains control of the merged party. Article 6. The assets and liabilities that the merging party obtains in a business combination shall be measured on the basis of their carrying amount in the merged party on the date of combination. The difference between the carrying amount of the net assets which the merging party obtains and the carrying amount of the consideration which it pays (or the total par value of the shares issued) shall adjust the additional paid-in capital. If the additional paid-in capital is not sufficient to be offset, the retained earnings shall be adjusted. Article 7. In a business combination under common control, if the accounting policy adopted by the merged party is different from that adopted by the merging party, the merging party shall, according to accounting policies it adopts, adjust the relevant items in the financial statements of the merged party and shall, pursuant to these Standards, recognize them on the basis of such adjustment. Article 8. The merging party's direct costs for the business combination shall, including the expenses for audit, assessment and legal services, be recorded in the profits and losses in the current period. The handling fees, commissions and other expenses for the bonds issued for the business combination or for assuming other liabilities shall be recorded in the amount of initial measurement of the bonds or other debts. The handling fees, commissions and other expenses for the issuance of equity securities for the business combination shall be credited against the surplus on equity securities; if the surplus is not sufficient, the retained earnings shall be offset. Article 9. Where a relationship between a parent company and a subsidiary company is formed due to a business combination, the parent company shall, on the date of combination, prepare a consolidated balance sheet, a profit statement and a cash flow statement. In the consolidated balance sheet, the assets and liabilities of the merged party shall be measured at their carrying amount. If it is necessary to make an adjustment according to these Standards because the accounting policy adopted by the merged party is different from that adopted by the merging party, the assets and liabilities of the merged party (parties) shall be measured on the basis of the post-adjustment carrying amount. The consolidated profit statement shall include the incomes, expenses and profits of the combining parties incurred from the beginning of the current period to the date of combination. The net profits of the merged party which has been realized prior to the combination shall be reflected through an item separately presented in the profit statement. The consolidated cash flow statement shall include the cash flow of the parties to the combination from the beginning of the current period to the date of combination. When preparing consolidated financial statements, the internal dealings of the combining parties shall be treated according to the Accounting Standards for Enterprises No. 33-Consolidated Financial Statement. CHAPTER III BUSINESS COMBINATIONS NOT UNDER COMMON CONTROL Article 10. A business combination not under common control is a business combination in which the combining enterprises are not ultimately controlled by the same party or parties both before and after the business combination. In a business combination not under common control, the party which obtains control of other combining enterprise(s) on the purchase date is the acquirer, other combining enterprise(s) is (are) the acquiree. The "acquisition date" refers to the date on which the acquirer actually obtains control of the acquiree. Article 11. An acquirer shall determine the combination costs in light of the following circumstances, respectively: (1) For a business combination realized by one exchange or transaction, the combination costs shall be the fair values, on the acquisition date, of the assets given, the liabilities incurred or assumed, and the equity securities issued by the acquirer, in exchange for the control of the acquiree; (2) For a business combination realized by two or more exchanges or transactions, the combination costs shall be the summation of the costs of all separate transactions; (3) Any costs incurred to the acquirer which are directly attributable to the business combination shall also be recorded in the cost of business combination; (4) Where any future events, which are likely to affect the combination costs, is stipulated in the combination contract or agreement, if they are likely to occur and if their effects on the combination costs can be measured reliably, the acquirer shall record the said amount in the combination costs. Article 12. The acquirer shall, on the acquisition date, measure the assets given and liabilities incurred or assumed as consideration for a business combination at their fair values, and shall record the differences between them and their carrying amounts in the profits and losses of the current period. Article 13. The acquirer shall allocate the combination costs on the acquisition date and shall, in accordance with Article 14 of these Standards, recognize all identifiable assets, liabilities and contingent liabilities it obtains from the acquiree: (1) The acquirer shall recognize the positive difference between the combination costs and the fair value of the identifiable net assets it obtains from the acquiree as business reputation; The business reputation upon initial measurement shall be measured on the basis of its costs less the accumulative impairment provisions. The impairment of business reputation shall be treated in compliance with Accounting Standards for Enterprises No. 8-Asset Impairment. (2) The acquirer shall, in pursuance of the following provisions, treat the gap between the combination costs and the fair value of the identifiable net assets it obtains from the acquiree: (a) It shall review the measurement of the fair values of the identifiable assets, liabilities and contingent liabilities it obtains from the acquiree, as well as the combination cost; (b) If, after the review, the combination cost is still less than the fair value of the identifiable net assets it obtains from the acquiree, it shall record the difference in the profits and losses of the current period. Article 14. The fair value of the identifiable net assets of the acquiree refers to the balance of the fair value of the identifiable assets acquired from the acquiree in a business combination less the fair value of the liabilities and contingent liabilities. The identifiable assets, liabilities and contingent liabilities which meet the following conditions shall be recognized separately: (1) For the assets other than intangible assets acquired from the acquiree in a business combination (not limited to the assets which have been recognized by the acquiree), if the economic benefits brought by them are likely to flow in the enterprise and if their fair value can be measured reliably, they shall be separately recognized and measured at their fair value. For any intangible asset acquired in a combination, if its fair value can be measured reliably, it shall be separately recognized as an intangible asset and shall measured at its fair value; (2) For the liabilities other than contingent liabilities acquired from the acquiree, if the performance of the relevant obligations are likely to result in any out-flow of economic benefits from the enterprise, and their fair value can be measured reliably, they shall be separately recognized and measured at their fair value; and (3) For the contingent liabilities of the acquiree obtained in a combination, if their fair value can be measured reliably, they shall separately recognized as liabilities and shall be measured at their fair value. After a contingent liability is measured initially, it shall be subject to a subsequent measurement according to the following amounts, whichever is bigger: (a) The amount which shall be recognized in accordance with the Accounting Standards for Enterprises No. 13-Contingent Events; (b) The balance of the initially recognized amount less the accumulative amortization amount which is recognized in accordance with the principle of the Accounting Standards for Enterprises No. 14-Revenue. Article 15. Where a relationship between a parent company and a subsidiary company is formed due to a business combination, the parent company shall prepare account books for future reference, which shall record the fair value of the identifiable assets, liabilities and contingent liabilities it obtains from the subsidiary company on the acquisition date. When preparing consolidated financial statements, it shall adjust the financial statements of the subsidiary company on the basis of the fair value of the identifiable assets, liabilities and contingent liabilities determined on the acquisition date. Article 16. Where a business combination occurs at the end of the current period, if the fair value of the identifiable assets, liabilities and contingent liabilities acquired in the combination or the cost of business combination can only be determined temporarily, the acquirer shall recognize and measure the business combination on the basis of the temporarily determined value. If an adjustment is made to the temporarily determined value within 12 months after the acquisition date, it shall be deemed as the recognition and measurement on the acquisition date. Article 17. Where a relationship between a parent company and a subsidiary company is formed due to a business combination, the parent company shall prepare a consolidated balance sheet on the acquisition date. It shall present the identifiable assets, liabilities and contingent liabilities acquired in the combination at their fair value. For the difference between the combination cost of the parent company and the fair value of the identifiable net assets it obtains from the subsidiary company, it shall present the result of the treatment according to these Standards. CHAPTER IV DISCLOSURE Article 18. Where a business combination occurs at the end of the current period, the merging party shall, in its notes, disclose the following information relevant to a business combination under common control: (1) The basic information about the combining enterprises; (2) The basis for the judgment about the business combination under common control; (3) The basis for the determination of the combination date; (4) If the consideration for the combination is the cash paid, the non-cash assets transferred and the liabilities assumed, it shall disclose the carrying amount of the consideration on the combination date. If any equity securities are issued as consideration for the combination, it shall disclose the number of the equity securities issued during the combination, the pricing principle as well as the proportion of the shares with voting power exchanged by the parties to the combination; (5) The carrying amounts of the assets and liabilities of the merged party on the balance sheet date of the prior accounting period as well as on the combination date; the information about the revenue, net profits and cash flow of the merged party from the beginning of the current period, in which the combination occurs, to the combination date; (6) The information about the merged party's contingent liabilities to be assumed according to the stipulations of the combination contract or agreement; (7) An explanation about the adjustment made because the accounting policy adopted by the merged party is different from that adopted by the merging party; and (8) The carrying amount or disposal price of the merged party's assets or liabilities which have been disposed or are to be disposed. Article 19. Where a business combination occurs at the end of the current period, the acquirer shall, in its notes, disclose the following information about the business combination not under common control: (1) The basic information about the combining enterprises; (2) The basis for the determination of the acquisition date; (3) The composition, carrying amount and fair value of the combination costs, as well as the method for the determination of the fair value thereof; (4) The carrying amounts and fair values of the identifiable assets and liabilities of the acquiree on the balance sheet date of the previous accounting period as well as on the acquisition date; (5) The information about the acquiree's contingent liabilities to be assumed according to the stipulations of the combination contract or agreement; (6) The information about the revenues, net profits and cash flow of the acquiree from the acquisition date to the end of the reporting period; (7) The amount of business reputation and the determination method adopted; (8) The amount which is recorded in the profits and losses of the current period because the combination cost is smaller than the fair value of the identifiable net assets acquired from the acquiree in the business combination; and (9) The carrying amount or disposal price of the acquiree's assets or liabilities which have been disposed or are to be disposed. |
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